5 Stocks Poised for Breakouts - views

WINDERMERE, Fla. (Stockpickr) -- Trading stocks that trigger major breakouts can lead to massive profits. Once a stock trends to a new high or takes out a prior overhead resistance point, then it’s free to find new buyers and momentum players that can ultimately push the stock significantly higher.

One recent example of a successful breakout trade was metal mining player Taseko Mines (TGB). I flagged Taseko in my breakout stocks article on Aug. 24, when it was forming a bottoming chart pattern and starting to uptrend and move into range of breaking out above some near-term overhead resistance levels at $2.67 to $2.89 a share.

Guess what happened? Shares of TGB went on to trigger that breakout with heavy upside volume, and the stock recently hit a high of $3.48 a share. That’s a solid move in a very short timeframe, and now TGB is setting up again to breakout over $3.48 to $3.60 a share. If TGB can take out those levels, then it has a chance of re-testing or possibly taking out its next major overhead resistance level at $4.30 a share.

Breakout candidates are something that I tweet about on a daily basis. I frequently tweet out high-probability setups, breakout plays and stocks that are acting technically bullish. These are the stocks that often go on to make monster moves to the upside. What’s great about breakout trading is that you focus on trend, price and volume. You don’t have to concern yourself with anything else. The charts do all the talking.

Trading breakouts is not a new game on Wall Street. This strategy has been mastered by legendary traders such as William O’Neal, Stan Weinstein and Nicolas Darvas. These pros know that once a stock starts to break out above past resistance levels, and hold above those breakout prices, then it can easily trend significantly higher.

One stock that’s trading within range of a near-term breakout trade is Alexco Resource (AXU), which operates two principal businesses: mineral exploration and development in Canada, primarily in Yukon Territory, and provision of consulting and project management services in respect of environmental permitting. This stock has been hit pretty hard by the sellers this year, with shares down by over 30% so far.

If you take a look at the chart for Alexco Resource, you’ll notice that this stock was downtrending badly until mid-August, with shares consistently making lower highs and lower lows, which is bearish technical price action. That said, it now looks like AXU has reversed its bearish trend to a bullish uptrend following a double bottom at around $3.21 to $3.36 a share. Shares of AXU have now started to surge back above its 50-day moving average of $3.90 a share, and it’s moving into range of triggering a near-term breakout trade.

Traders should now look for long-biased trades in AXU once it manages to break out above some near-term overhead resistance levels at $4.60 to $4.80 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 300,688 shares. If that breakout triggers soon, then AXU will have a great chance of re-testing or possibly taking out its next major overhead resistance levels at $5.60 to its 200-day moving average at $5.78 a share. If AXU clears its 200-day with volume, then this stock could even trade up to $6.60 a share.

One could look to buy AXU off any weakness to anticipate the breakout, and then simply use a stop at around $4.20 to $4 a share. One could also just buy off strength once AXU takes out $4.60 to $4.80 a share with high volume. If you buy off strength, then use a stock at around $4.40 to $4.25 a share. I would add to either position once AXU clears its 200-day at $5.78 with heavy upside volume.

Zogenix

Another stock that’s setting up for a major breakout trade is Zogenix (ZGNX), a pharmaceutical company engaged in commercializing and developing products for the treatment of central nervous system disorders and pain. This stock is up modestly so far on the year, with shares up around 10%.

If you take a look at the chart for Zogenix, you’ll notice that this stock has been uptrending very strong for the last three months, with shares consistently making higher lows and higher highs, which is bullish technical price action. That uptrend has taken ZGNX from a May low of $1.55 to its recent high of $2.60 a share. That bullish price action has now pushed ZGNXZ within range of triggering a major breakout trade.

Market players should now look for long-biased trades in ZGNX if this stock can manage to take out some near-term overhead resistance levels at $2.54 to $2.60 a share with high volume. Look for a sustained move or close above those levels with volume that tracks in close to or above its three-month average action of 355,103 shares. If that breakout triggers soon, then ZGNX will have a great chance of re-testing or possibly taking out its next major overhead resistance levels at $2.90 to $3.04 a share. Any high-volume move above $3.04 will setup ZGNX to possibly hit $4 to $5 a share.

One can look to buy ZGNX off any weakness and anticipate that breakout, and simply use a stop around its 50-day moving average of $2.25 a share. One could also buy off strength once ZGNX clears $2.54 to $2.60 with heavy upside volume, and then simply use a stop at around $2.40 to $2.30 a share. I would add to either position once ZGNX takes out $3.04 with strong volume.

Idenix Pharmaceuticals

Another stock that’s trading within range of triggering a near-term breakout trade is Idenix Pharmaceuticals (IDIX), a biopharmaceutical company engaged in the discovery and development of drugs for the treatment of human viral diseases, with operations in the U.S. and Europe.. This stock has been hammered by the bears during the last six months, with shares down by over 45%.

If you look at the chart for Idenix Pharmaceuticals, you’ll see that this stock recently plunged big from around $11.12 to a low of $5.28 a share. During that sharp move lower, shares of IDIX saw high volume selloffs and it even gapped down large with big volume. That said, the stock has started to stabilize and trend sideways between $5.28 and $6.35 a share. A move outside of that sideways trading pattern soon will likely setup the next major trend for IDIX.

Market players should now look for long-biased trades in IDIX if it can manage to break out above some near-term overhead resistance levels at $6.16 to $6.35 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 2,088,730 shares. If that breakout triggers soon, then IDIX will have a great chance of re-filling its previous gap and possibly hitting $8 to $9.50 a share.

One could look to buy IDIX off weakness and anticipate that breakout, and simply use a stop around some previous support levels at $5.50 to $5.28 a share. You could also just buy off strength once IDIX clears $6.16 to $6.35 with high volume, and simply use a stop at around $6 a share.

Spectrum Pharmaceuticals

Another stock that’s trading close to triggering a near-term breakout is Spectrum Pharmaceuticals (SPPI), a biotechnology company with integrated commercial and drug development operations with a focus in hematology and oncology. This stock has been trending lower so far in 2012, with shares off by over 16%.

If you look at the chart for Spectrum Pharmaceuticals, you’ll see that the bears have destroyed this stock during the last two months following a double top chart pattern at around $17.48 to $17.19 a share. Shares of SPPI went on to plunge off that double top and recently hit a low of $11.13 a share. During that sharp move lower, shares of SPPI were consistently making lower highs and lower lows, which is bearish technical price action. That said, the stock has started to stabilize and trend sideways between $11.33 and $12.76 a share.

Traders should now look for long-biased trades in SPPI if it can manage to break out above some near-term overhead resistance at $12.75 to $12.76 a share with high volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average action of 1.9 million shares. If that breakout triggers soon, then SPPI will have a great chance of re-testing or possibly taking out its next major overhead resistance levels at $14 to $14.50 a share. If SPPI can take out $14 to $14.50 a share, then it could easily trade north of $15 a share.

One could look to buy SPPI off weakness and simply use a stop that sits just below some near-term support at $11.79 to $11.33 a share. You could also buy off strength once SPPI takes out $12.75 to $12.76 with volume, and then simply use a stop at around $11.80 a share. I would look to add to either position once SPPI clears $14 to $14.50 with heavy upside volume.

Rare Element Resources

My final idea today that could be ready to trigger a major breakout trade is Rare Element Resources (REE), which is engaged in the acquisition, exploration and development of mineral properties. This stock is off to a hot start so far in 2012, with shares up over 50%.

If you look at the chart for Rare Element Resources, you’ll see that this stock has just started to bounce strong off its 50-day moving average of $4.30 a share with decent upside volume. That move is quickly pushing REE within range of taking out its 200-day moving average at $5.04 a share, and then possibly taking out some more overhead resistance levels. If those resistance levels are cleared with decent volume, then REE will trigger a major breakout trade.

Traders should now look for long-biased trades in REE once it manages to clear some near-term overhead resistance levels at $5.04 to $5.50 a share with high volume. Look for volume off that move that hits near or above its three-month average action of 462,603 shares. If that breakout triggers soon, then REE will setup to re-test or possibly take out its next major overhead resistance levels at $6 to around $7 a share.

One could look to get long REE off weakness, and simply use a stop just below its 50-day moving average of $4.30 a share. You could also just buy off strength once REE clears $5.04 to $5.50 a share with high volume, and then simply use a stop at around its $4.75 to $4.50 a share.

At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.